Life beyond the City: London s shifting centre of gravity

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1 NEWS RELEASE Contact number for media enquiries +44 (0) Life beyond the City: London s shifting centre of gravity As the financial services sector struggles over the coming years, other sectors are set to become the capital s key drivers of growth New forecasts from the Centre for Economics and Business Research show that the City of London and financial services are to continue to suffer from weak growth conditions over the coming years and will hold back economic prospects for London as a whole. Instead, the spotlight is set to shift to include a wider range of star performers as the capital broadens its growth base. The key areas driving the London economy in the years to 2017 are expected to be the MIC sectors of London s flat white economy (Media, Internet & Creative) and the more traditional Business Services such as business consultancy and accountancy. London has key advantages in these sectors, with more than a fifth of all the computer-related and telecommunication-based jobs in Great Britain being based in the capital 1. In addition, business service output in London has continued to grow and we expect output in the sector to rise by 1.9% in These latest Cebr findings corroborate the results of the Q ICAEW / Grant Thornton Business Confidence Monitor 2. Confidence in business prospects for the coming 12 months compared to the past year is much higher in 2012 among IT & Communications and Business Services firms, which scored Confidence Index readings of and +7.4 respectively, than at Banking, Finance & Insurance companies, which scored just +1.2 on average in Our new estimate is for the London s economy to record just 0.2% growth in 2012 as a whole followed by a 1.1% rise in Growth in London is expected to outpace the UK overall but 1 GLA Intelligence Unit, London s Digital Economy, January ICAEW / Grant Thornton quarterly Business Confidence Monitor a survey of 1000 businesses; see more here: Centre for Economics and Business Research Unit 1, 4 Bath Street, London EC1V 9DX T: W:

2 remain behind higher growth in the South East and East of England in the short term, as the capital is held back by a shrinking financial services sector. However, London is expected to lead the pack once again by The business model of the up-and-coming MIC sectors and the more traditional business services sectors tend to be more labour intensive than finance. Remuneration levels reflect this, with financial pay often concentrated in fewer, high-earning individuals. Illustrating this, UK data show that average annual earnings in finance & insurance during the year to August 2012 were 52,000, compared to 41,000 in IT & communications and 36,000 for business services. 3 This change in the economic focus of London is causing a shift in the centre of gravity of London to the east. Reflecting this, the Greater London Authority (GLA) forecasts strong job creation 4 in the East of London over the next two decades. Employment is projected to rise by 31% by 2031 in Inner London East. 5 This compares to employment growth of a relatively slow 9% over the same period in Inner London West. 6 Buoyant employment growth across MIC and business services is expected to help boost net job creation across the capital as a whole. London s employment levels are forecast to rise by 1. over 2012 as a whole (partially due to Olympic effects) and by 0.8% in Employment growth is expected to reduce the capital s unemployment rate from 9.1% in 2012 to 8.7% by The rate is likely to remain well above the average for the UK as a whole, due to rapid growth in the economically active population. These economic changes are changing the shape of London. Increasingly, employees in key growth sectors can t afford (or choose not) to live in the West London and prefer to inhabit burgeoning eastern boroughs. Government infrastructure investment in the region in the run-up to the 2012 Olympics has helped to kick start local development and we expect growth in the East of London population continue. East London has already seen much faster population growth in the decade between 2001 and 2011 compared with elsewhere in the capital, with resident population rising by roughly 2 in Tower Hamlets and Newham and almost 2 in Hackney. At the same time, the population of Kensington and Chelsea fell back. Over the 20 years from 2011 to 2031, this trend is expected to continue; forecasts from the Greater London Authority (GLA) show that the population of Tower Hamlets is projected to rise by 31% by 2031 and Newham s by 21%. 7 The East London and Thames Gateway area is expected to see population growth of 18% over this period, compared to 13% across Greater London. 3 Office for National Statistics, labour market statistics October GLA Working Paper 51: Employment projections for London by sector and trend-based projections by borough 13 December A statistical region used by the Office for National Statistics in the NUTS3 classification that comprises: Haringey, Lewisham, Hackney, Lambeth, Newham, Islington, Southwark & Tower Hamlets 6 Camden, City, Hammersmith & Fulham, Kensington & Chelsea, Wandsworth, Westminster 7 Greater London Authority, 2011 Round of Demographic Projections 2

3 Cebr Economist Rob Harbron commented: The projected broadening of London s growth base is positive news both for the capital s economy and for the prospects of the UK as a whole. Having eggs in more baskets should help London to weather economic storms better than during the financial crisis and downturn of Cebr Head of Macroeconomics Charles Davis commented: London is evolving and adapting to life post-financial crisis. While in the short term there has been no shortage of pain with job losses across the City and economic output broadly flat in 2012, we think there are positive signs that the capital is adjusting and new sectors are taking prominence in different parts of London away from the City and West End. This economic shift is also driving social change as population in East London booms. While this change was already taking place, the impetus provided by the Olympics has helped to secure infrastructure investment which should contribute to further growth in both employment and population in East London. 6% 4% 3% 2% 1% -1% -2% -3% -4% - Annual real GDP growth London UK Source: Cebr London, City and Regional prospects report 3

4 3 Change in number of residents, 2001 to Source: Office for National Statistics Census, Cebr analysis Source: GLA population forecasts, Cebr analysis 4

5 GLA Employment growth forecast Outer London - East and North East Outer London - South Outer London - Inner London - Inner London - West and North West West East Source: Cebr analysis of GLA 2011 Employment projections by borough, NOTES TO EDITORS Cebr s estimates and forecasts for the London economy are published in London, City & Regional Prospects, released to subscribers only in October London, City & Regional Prospects is the twice-yearly Cebr publication on the outlook for the London economy and the regional economies of the UK. The forecasts are based on Cebr s bespoke economic models and draw on Cebr s renowned research on the UK, London and regional economies. Forecasts look at three to five years ahead and provide detail by year for each Government Office Region s GDP and employment outlook. Cebr is a leading independent commercial economics consultancy with particular strengths in macroeconomic and market forecasting. The report has been co-authored by Cebr staff (for details see below). For more information, please contact: Rob Harbron +44 (0) Douglas McWilliams +44 (0)